Market Overview

Municipal smart city initiatives began in the 2010s, but many have stalled at the demonstration stage. One of the reasons is funding. A smart city requires an enormous amount of money to plan and develop services, making it difficult for a municipality to shoulder the burden alone, despite its eagerness and enthusiasm. However, with the start of subsidies for the Digital Garden City Nation initiative in FY2022, many municipalities have accelerated their smart city projects. The subsidy for the Digital Garden City Nation initiative is the financial support for municipalities that aim to solve problems in local communities and to revitalize them. The subsidy plays an important role for municipalities that are eager to implement the initiative, as it enables them to move forward with large-scale projects to realize the smart city.  

Municipal smart cities are characterized by the utilization of data integration platforms that consolidate data across sectors. Part of the subsidies are granted on the condition that services are generated using these platforms. As a result, the deployment of data integration platforms increased rapidly after FY2022. In FY2023, an increasing number of municipalities have strengthened new services in addition to operating the platform and services. The subsidies have also helped some municipalities to enter new business. These municipal efforts have led the size of the municipal smart city market in terms of corporate revenue to reach 78,965 million yen in FY2023, up 2.1% year on year.   

Noteworthy Topics

The Biggest Challenge Is Business Continuity

Municipal smart cities have many challenges for them to continue the business. One of such challenges is difficulty in monetization. Currently, many municipal smart cities depend on subsidies for the Digital Garden City Nation and other initiatives to drive the business. Therefore, they are dependent on the national policy.

Each municipality is responsible for providing administrative services including disaster prevention. Sharing of systems for providing such services with other municipalities is underway thereby reducing the cost of operating and maintaining systems and organizing data integration platforms. Other efforts are in progress to build a scheme for revenue-generating services that can charge beneficiaries as much as possible, such as AI-powered, on-demand taxis and other travel-related services. Building a revenue-generating scheme is essential for the business to continue in the future.

There is also an issue of unsatisfactory user acquisition, although various new services have been generated. As such services are not fully recognized, the municipalities are focusing on improving existing services and user acquisition rather than generating new services.

Future Outlook

The municipal smart city market based on corporate revenue is expected to reach 79,913 million yen in FY2024, up 1.2% year on year.   

As some municipalities that have already started the project are looking for revenue generation and are focusing on user acquisition for existing services rather than new business generation, large-scale investment is declining. On the other hand, those municipalities that are new to the smart city project can use the accumulated knowhow of services already launched by other municipalities, which allows them to start the business at a relatively low cost and in a short period of time. As the number of municipalities launching new smart city projects increases, the municipal smart city market is expected to grow slightly hereafter, despite the decline in large-scale investment. 

Research Outline